KfW Research: German SMEs have digested energy price swings well so far

• Majority of businesses have cut their energy use by adopting energy-conscious behaviour

• Energy now makes up lower share of SMEs’ costs than before outbreak of Ukraine war

• Reducing energy use further a challenge for many small businesses

The turbulent price movements in the energy markets as a result of Russia’s war of aggression against Ukraine have hit many small and medium-sized enterprises in Germany hard and unprepared. Overall, however, German SMEs have managed the energy price swings well. This was due not just to the renewed drops in the energy price level and generally easing crisis symptoms, but most of all to the extensive measures they adopted to reduce their own energy use. Already in March 2023, 72% of SMEs had cut their energy use by adopting energy-conscious behaviour such as lowering their indoor air temperature or adopting a fuel-saving driving style, while a further 9% were planning such changes. This was revealed by two special surveys conducted by KfW Research on the basis of the representative KfW SME Panel. More elaborate measures such as investments in energy efficiency or electricity/heat generation from renewable energy were already carried out by a notable 19% and 15%, respectively (planned: 16% and 20%).

The fact that their efforts to cut energy use, some of which have been massive, have paid off is evident from the percentage of energy costs in SMEs’ turnover. In 2021, even before the Ukraine war, energy costs accounted for not more than two per cent of total turnover in roughly one third (34%) of SMEs. Since then, that group has grown yet again. In the spring of 2023, 42% of small and medium-sized enterprises spent a maximum of two per cent of their total turnover on energy. That was around 1.6 million businesses. In a further 31%, energy costs account for two to five per cent of turnover, and in one in five SMEs it represents 5% to 10%. At the same time, the share of SMEs in which energy costs made up a high share of turnover (in excess of ten per cent) halved from 16% to 7%.

With a view to potential future energy savings, it was found that a good one fourth of SMEs (28%) have already put measures in place and also plan to cut their energy use further. A similar proportion have neither implemented nor planned any measures to cut energy use (27%), and 4% have not moved beyond the planning stage. Nevertheless, 41% also reported having exhausted all available options of which they were currently aware or that were affordable or technologically feasible for them. In this regard, there are major differences between enterprises of different sizes. Cutting energy use further appears to pose a challenge for small businesses in particular. Of the SMEs with fewer than ten employees, 42% reported having exhausted all options already, while that figure was only 29% among large SMEs with more than 50 workers. A likely major reason for this is that larger enterprises have more capacity for putting in place more elaborate energy-saving measures. While simple methods such as more fuel-conscious driving, which can be implemented by nearly every business without major effort, larger investment projects require more resources which smaller firms are less likely to be able to mobilise. Moreover, further energy-saving measures are also much more likely to be a challenge for 62% of energy-intensive enterprises – including those in which energy costs make up more than ten per cent of their turnover. This is plausible because energy-intensive businesses in particular have already addressed energy-saving measures more intensively in the past because of their cost structure and implemented them accordingly.

“At present, small and medium-sized enterprises are generally in a comfortable position with regard to pressure from energy cost, among other things because they have done their homework and reduced their costs, for example by adopting energy-conscious behaviour”,

said Dr Fritzi Köhler-Geib, Chief Economist of KfW.

“Predicting energy price swings is fraught with great uncertainty, especially in the current environment. In any case, we need to remain vigilant to the movement of energy costs and the ability of SMEs to absorb the costs and, where necessary, support them in identifying and implementing further energy saving measures with suitable measures such as advice and financial support.”

The current special survey by KfW Research can be found at ­ www.kfw.de/fokus.

The dataset:

The analyses on energy costs in the SME sector were based on two supplementary surveys conducted as part of the KfW SME Panel from the months of March and May 2023. The basic population includes all private-sector companies from all industries with annual turnovers of up to EUR 500 million. A total of the 10,796 SMEs took part in the main survey, which was conducted from 10 February 2022 to 17 June 2022. All enterprises that had already participated in an earlier wave of the KfW SME Panel and had provided a valid email address were included in the special surveys. Overall, responses from 2,485 enterprises were evaluated in the special survey of March 2023 (survey period: 1 to 8 March 2023), and from 2,415 enterprises in the most recent special survey of May 2023 (survey period: 4 to 12 May 2023).